The National Taxpayer Advocate's annual report to Congress.

• Author: Chambers, Valrie
• Position: Part 1

This item recaps the recommendations of Nina Olson, the National Taxpayer Advocate, for changes within the IRS as presented in her annual report to Congress. A second item, to be published in the October 2009 issue, will outline Olson's recommended legislative reforms to the tax code and review the most frequently litigated tax issues.

In January 2009, Olson presented her annual report to Congress, outlining the IRS system and legislative suggestions for improving the federal tax system. Some of her suggestions were implemented early in the current presidential administration (e.g., the discontinuation of private debt collection on behalf of the IRS), and more issues are outlined below.

Recommendations for the IRS

The five most serious problems encountered by taxpayers are:

1. The complexity of the tax code, which is both costly and "leads to perverse results";

2. The hardship effect of collection enforcement (especially levies and seizures) on economically distressed taxpayers (as opposed to making greater use of offers in compromise and installment agreements);

3. The correct reporting of income or exclusion on cancellation of debt, which requires the filing of the little-known Form 982, Reduction of Tax Attributes Due to Discharge of Indebted ness (and Section 1082 Basis Adjustment), and the unwritten rule (in forms and publications, at least) that a tax payer must also provide a statement of insolvency;

4. The lack of early intervention and the overreach of IRS employment tax policies even where education is likely more effective than enforcement; and

5. IRS improvements to assist victims of identity theft.

Note that the IRS has already established an Identity Protection Specialized Unit and a toll-free hotline for victims of identity theft (1-877-438-4338, or 1-877-IDtheft). However, the IRS could possibly give taxpayers the opportunity to review and monitor their tax accounts and allow IRS employees more latitude in determining the rightful owner of a disputed Social Security number.

Taxpayer Service Issues

Olson had several suggestions for improving taxpayer service, including establishing more face-to-face assistance centers in the United States and overseas, expanding the hours at existing sites, and increasing the live (as opposed to internet) education and outreach program for small business/self-employed taxpayers. She would also like the IRS to publicize an employee phone directory with a topical index, provide more toll-free...